http://www.canada.com/calgaryherald/news/newcondos/story.html?id=ccb1df51-0b08-4ec8-bbb2-bb677a5ac047
Real estate turns out to be solid investment
Ozzie Jurock, For The Calgary Herald
Published: Saturday, July 28, 2007
While we cannot predict the future by looking in the rearview mirror, looking at things like Vancouver's past house prices should give us some comfort about 2007 and beyond.
It isn't that prices rose. We know that, but they rose through the largest stock market collapse in 1974 (when the DOW dropped 42 per cent in six months) or the scariest collapse of 1987, when we heard voices of "the '30s are back."
They also rose through the Asian flu, stock market crashes and the dastardly 9/11.
Font: ****If you did nothing but buy a house or a condo, put down the minimum payment, you would have, through the leverage of the price to down payment ratio, made a literal tax-free fortune.
The prices in chart A (below) started with single-family homes only until 1974 (no condos in the '60s), when the average became "mixed" with condos and single-family home prices.
The average mixed price this April was $540,100.
Now take the 1960 single-family home price of $13,105. Assume a five per cent down payment $655.
Taste that sweet profit of $561,645 -- tax-free -- and then do some calculations.
That represents an increase of 85,700 per cent, which is 85,700 per cent, or an average increase of 2,317 per cent per year, 193 per cent per month.
Because there were no condos in 1961, one could also be matching 1960's single-family home price -- not with the average price of condos and homes, but with the actual single-family house price of April 2007 of $820,000.
Now take the 1960 single family home price of $13,105. Assume a five per cent down payment of $655. Use the April 2007 single-family home price average of $820,000. Taste that very sweet profit of $819,345 -- again, tax free -- and do some calculations.
That represents an increase of 126,000 per cent! Or an average increase of 3,405 per cent per year, or 283.78 per cent per month.
Now take that stock market investment.
Forever, we have had to listen to negative pundits who claim that real estate values are not really rising that fast, that for this or that reason, increases are marginal, etc.
Generally, however, they look at the full price of the home and extrapolate increases from there.
Instead of the buyer's cash investment, the increase in equity based on the average down payment.
Even if we looked out of town -- for instance the city of Kelowna's condo market -- and used the shorter time frame of 20 years, an astounding picture emerges (see chart B, right).
Five per cent down on $53,400 equals $2,670; profit: $254,600 minus $2,670 equals $251,930, or 9,600 per cent.
In Calgary, the situation is outlined by chart C, right.
Take the 1994 single-family home price of $133,400. Assume a five per cent down payment of $6,670.
Using the March 2007 price of $416,000 and subtract it by $6,670. That equals a profit of $416,000, or 6,600 per cent, in 13 years.
Of course, of course, we hasten to add: Yes, it is a bit of a simplistic game we are playing here.
No accounting for upkeep, for loss of return on down payment, for tax payments and so on.
However, it does demonstrate that buying real estate is a good thing, in all markets, anywhere.
Major point: So, be happy, don't worry The naysayers were here in 1964,1974, 1982, 1987, 1989, 1993, 1997, 1998, 1999 and they are back again today.
We live in the world's most unreported inflation of all times.
We create more money out of thin air than ever.
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Font: ****Corporations are gushing cash. Cheap money always results in more inflation of hard assets.
This is not a Vancouver or Canadian phenomenon, it is worldwide.
Ozzie Jurock is a Vancouver-based real estate expert and motivational speaker who is the publisher of Jurock's Real Estate Insider at http://www.jurock.com." rel="nofollow">LINK Canadian journalist Peter Newman, in his book the Titans, called him a
real estate guru. Donald Trump features him in his latest book, Trump: The Best Real Estate Advice I Ever Received. You can reach Jurock at 604-683-1111, or e-mail him at
CHART C: AVERAGE
Calgary housing prices
Year Avg. sales price
- 1994 $133,400
- 1995 $133,500
- 1996 $137,000
- 1998 $155,000
- 1999 $166,000
- 2000 $172,000
- 2001 $185,000
- 2003 $205,000
- 2005 $250,000
- 2006 $350,000
- March 2007 $416,000
CHART A: AVERAGE VANCOUVER HOUSING PRICES
Year Avg. sales price Year Avg. sales price Year Avg. sales price
- 1960 $13,105 n 1976 $68,694 n 1993 $279,800
- 1961 $12,348 n 1977 $64,556 n 1994 $305,600
- 1962 $12,518 n 1978 $66,243 n 1995 $309,500
- 1963 $12,636 n 1979 $70,888 n 1996 $288,200
- 1964 $13,202 n 1980 $100,087 n 1997 $287,000
- 1965 $12,964 n 1981 $148,860 n 1998 $278,600
- 1966 $15,200 n 1982 $107,829 n 1999 $281,100
- 1967 $17,836 n 1983 $114,618 n 2000 $295,977
- 1968 $20,595 n 1984 $113,722 n 2001 $285,900
- 1969 $23,939 n 1985 $112,737 n 2002 $301,500
- 1970 $24,239 n 1986 $120,035 n 2003 $329,500
- 1971 $26,471 n 1987 $132,658 n 2004 $362,800
- 1972 $31,465 n 1988 $160,375 n 2005 $395,400
- 1973 $41,505 n 1989 $209,670 n 2006 $482,000
- 1974 $57,861 n 1990 $230,641 n 2007 $540,100
- 1975 $64,471 n 1992 $245,200
CHART B: AVERAGE CONDO PRICES IN KELOWNA
Year Price
- 1987 $53,400
- 1989 $65,000
- 1991 $82,700
- 1993 $102,000
- 1995 $106,500
- 1997 $102,000
- 1999 $106,000
- 2001 $107,000
- 2003 $144,500
- 2005 $206,700
- Feb. 2006 $217,500
- Feb. 2007 $254,600
Hi Jayram
You missed the maintainence and other expenses on the real estate when calculcating your profit.
--Five per cent down on $53,400 equals $2,670; profit: $254,600 minus $2,670 equals $251,930, or 9,600 per cent.
where is 30 yrs of property taxes , home maintenance , Mortgage interest , 7 % agent selling fee and other not so known expenses
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We will find a way or we will make one
Location: Canada-Glorious and Free
Posted on: 31-07-07 09:16:30
Quote:
Originally posted by Smiley
Hi Jayram
You missed the maintainence and other expenses on the real estate when calculcating your profit.
--Five per cent down on $53,400 equals $2,670; profit: $254,600 minus $2,670 equals $251,930, or 9,600 per cent.
where is 30 yrs of property taxes , home maintenance , Mortgage interest , 7 % agent selling fee and other not so known expenses
Although I do not view personal homes as an investment vehicle, this calculation clearly shows that even in down markets as experienced in the early 1990s or the mini-correction experienced in early 2000's, property values do not take a plunge like many think it does.
There is a line in there that says this is a simplified calculation and that may be the clue as to why there some of the costs associated with this transaction are not included. But like every other investment vehicle, real estate has it's associated costs. Instead of property tax you have income tax, instead of maintenance fees you have account fees, broker fees happen in all types of investment vehicles. But as for those that think it is better to invest in say the stock market etc. this is the key -> no other investmant vehicle allows you to leverage to the extent real estate does. With a $ 100k you could have a "portfolio" of a $ 1M !
BV
Big Vee you got it right. In real estate you can you use OPM ( Other Peoples Money). Which investment other people will lend you the money? Power of Leverage and Real Estate is a long term investment and not a short term.
Location: carl sagan's universe
Posted on: 31-07-07 12:14:28
Quote:
Originally posted by jayaram
Big Vee you got it right. In real estate you can you use OPM ( Other Peoples Money). Which investment other people will lend you the money? Power of Leverage and Real Estate is a long term investment and not a short term.
There are many investments for which you can borrow money. It's a regular exercise for me to arrange such loans.
Location: carl sagan's universe
Posted on: 31-07-07 12:16:50
Quote:
Originally posted by Big Vee
Quote:
Originally posted by Smiley
Hi Jayram
You missed the maintainence and other expenses on the real estate when calculcating your profit.
--Five per cent down on $53,400 equals $2,670; profit: $254,600 minus $2,670 equals $251,930, or 9,600 per cent.
where is 30 yrs of property taxes , home maintenance , Mortgage interest , 7 % agent selling fee and other not so known expenses
Although I do not view personal homes as an investment vehicle, this calculation clearly shows that even in down markets as experienced in the early 1990s or the mini-correction experienced in early 2000's, property values do not take a plunge like many think it does.
There is a line in there that says this is a simplified calculation and that may be the clue as to why there some of the costs associated with this transaction are not included. But like every other investment vehicle, real estate has it's associated costs. Instead of property tax you have income tax, instead of maintenance fees you have account fees, broker fees happen in all types of investment vehicles. But as for those that think it is better to invest in say the stock market etc. this is the key -> no other investmant vehicle allows you to leverage to the extent real estate does. With a $ 100k you could have a "portfolio" of a $ 1M !
BV
"no other investmant vehicle allows you to leverage to the extent real estate does. With a $ 100k you could have a "portfolio" of a $ 1M !"
Wanna bet?
Location: Canada-Glorious and Free
Posted on: 31-07-07 15:49:55
Quote:
Originally posted by investpro
"no other investmant vehicle allows you to leverage to the extent real estate does. With a $ 100k you could have a "portfolio" of a $ 1M !"
Wanna bet?
This is interesting. Tell us more. i am sure others would like to hear about a 90% leverage option anywhere.
BV
